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Algorithmic Trading Glitch Costs Firm $440 Million

alstor (587931) writes | more than 2 years ago

Bug 3

alstor writes "Yesterday an update to Knight Capital Group's algorithmic trading software caused massive volume buys and sells, resulting in large price swings on the New York Stock Exchange (NYSE). As a result, the NYSE canceled some of the trades, but today the loss to Knight has been calculated at $440 million. Ignoring adjustments for inflation, this makes the cost of this glitch almost as much as the $475 million charge Intel took for the Pentium FDIV Bug, which might warrant adding this bug to the list of worst bugs. In light of this loss and the May 6, 2010 Flash Crash, perhaps investors will demand changes from firms using algorithmic trading, since the SEC is apparently too antiquated to do anything about it (PDF WARNING)."
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3 comments

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Here's an idea (1)

JustNiz (692889) | more than 2 years ago | (#40855777)

How about doing some testing first.
I blame Microsoft for making buggy software socially accepted.

Re:Here's an idea (1)

gagol (583737) | more than 2 years ago | (#40855865)

I think it is more deeply rooted than that. The real issue is software engineers and firms are not liable for errors caused by their software.

Re:Here's an idea (1)

Jane Q. Public (1010737) | more than 2 years ago | (#40859365)

"The real issue is software engineers and firms are not liable for errors caused by their software."

No, for a couple of reasons. First, the programmers are typically working directly for the company doing the trading; it's too secretive to be "outsourced" to some outside software firm.

But mainly: the REAL issue is simply that algorithmic trading is simply a BAD IDEA. Just like the "algorithmic" price-setting on Amazon that led to new books priced at over $1,000,000.00, algorithmic trading, sooner or later, will result in a loop causing at least some stocks in the market to crash while others will be monumentally over-valued. This could even be "hacked" and manipulated if some firm decided they wanted to do it on purpose.

It is inevitable. It needs to go away. Now.

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